Commentary: Inventory management poses challenge for PCB makers amid demand fluctuations

Commentary: Inventory management poses challenge for PCB makers amid demand fluctuations
Patty Wang, Taipei; Jackie Chang, DIGITIMES [Wednesday 26 June 2013]
In predicting the market condition, most PCB firms believe demand to be strong in the second half of 2013. The industry has been experiencing weak demand in the first half of 2013 but as many new products will be launched, demand for flexible printed circuit boards (FPCBs), any-layer HDI boards, and IC substrates is expected to grow significantly in the second half. Most PCB firms believe sales in the second half to show 50% growth compared to the first half of 2013. Inventory management has been a challenge for PCB makers amid strong fluctuations in demand.

Demand for PCs and notebooks continues to be weak in the first half of 2013. The average capacity utilization rate of rigid PCB production lines has been between 70-80%. Taiwan-based FPCB manufacturers Zhen Ding Technology Holding, Career Technology and Flexium Interconnect have been seeing flat capacity utilization rates in the first half of 2013 as the biggest FPCB buyer, Apple, has yet to introduce new products. The three firms also saw falling revenues in 2013 compared to the fourth quarter of 2012.

Significant demand fluctuations mean upstream material firms need to adjust supply carefully. Suppliers of upstream material flexible copper-clad laminate (FCCL) have been conservative in expanding capacity compared to downstream FPCB makers. Hence the capacity utilization rate of upstream makers has reached above 80% even in the low season. These firms may not be able to meet clients’ needs when demand rises sharply in the second half of 2013.

Suppliers of rigid PCB material such as copper-clad laminate (CCL) and glass fiber fabric have been affected by low capacity utilization rates at downstream customers in the first half of 2013. CCL makers have been suffering from market oversupply and have yet to be able to increase quotes. These factors have been affecting the firms’ profits. On the other hand, as demand rises in the second half, fiber glass fabric is likely to see shortages as more high-end smartphones adopt the component.

In the PCB industry, oversupply is normal, and therefore a shortage is likely to drive up average selling prices (ASPs) and benefit firms in the short run. However, amid strong fluctuations in demand, firms have to be more careful in capex planning.

The profit margin of upstream PCB material is very thin and a slight fall in capacity utilization rate can drive firms into net losses. Hence firms have been conservative in expanding capacity even during the boom season.

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